Bright prospects seen for Orion with Asean microloan industry growth

This article first appeared in The Edge Financial Daily, on April 19, 2019.
-A +A

Orion IXL Bhd
(April 18, 18 sen)
Initiate coverage with add and a target price (TP) of 33 sen.
Orion IXL (Orion) provides computerised maintenance management system services but has been losing money over the past few years. A new management team took over the company in 2017 and has since developed a fintech solution specialising in financial transaction management systems, using big data analysis, artificial intelligence and blockchain technology

In October 2018, Orion got its big break in the fintech space when its 20%-owned associate Sukaniaga Sdn Bhd entered into an agreement with Angkasa, Malaysia’s national co-operative movement, to provide a fintech end-to-end loan application and approval platform called MyAngkasa Az-Zahra (MyAzZahra) for its credit co-operatives to offer microloans to government staff. We project MyAzZahra to handle the approvals for RM1 billion microloans by the forecasted financial year 2020 (FY20F) and RM3 billion by FY21F.

In April 2019, Orion signed a memorandum of understanding (MoU) with SME Bank Bhd to automate the latter’s traditional banking business and develop an alternative credit-scoring engine platform for microloans to small and medium enterprises. In the same month, Orion also signed an MoU with Indonesia’s PT Kirana Investima Nusantara (PTKIN) to develop a platform for microloans to be used in its 75,000 provinces. We have not imputed any potential earnings from either company.

In our view, Orion’s long-term earnings growth outlook looks exciting. The Asean microloan industry is in the nascent stage, with positive long-term prospects in view of the region’s high 2018 mobile phone penetration rate of 80%. Orion’s first-mover advantage allows it to target non-bank financial institutions (NBFIs) that are keen to offer microloans to consumers, and it is in talks with overseas NBFIs on its fintech solutions.

Our TP is based on a fully diluted 24 times forecasted calendar year 2020 (CY20F) price-to-earnings  (P/E) ratio (60% premium over our target 15 times CY20F P/E for the Malaysian technology sector), to reflect potential earnings from SME Bank and PTKIN.

Rerating catalyst is more NBFIs using the company’s fintech system, while downside risks are weak loan take-up rate for MyAzZahra, stock overhang from placement of new shares and poor execution. — CGSCIMB Research, April 17